On 14 August, Hang Seng Index Limited announced the results of the quarterly review of the Hang Seng Index series as at 30 June 2020. All changes will take effect on September 7, 2020 (Monday). In the specific results, the number of constituent stocks in the hang⽣index remained at 50, and three new stocks were added, namely, Xiaomi group-w (1810), Yaoming Biotechnology Co., Ltd. (2269) and Alibaba Group Holdings Co., Ltd. - SW (9988).
Three branches were excluded: Xinhe Real Estate Co., Ltd. (83), China Wangwang Holding Co., Ltd. (151) and China Shenhua Energy Co., Ltd. - H shares (1088).
Hang Seng Index Limited said that in view of the rapid development of innovation and new economy industries in the Hong Kong market, the Hang Seng Index Advisory Committee agreed with the recommendation of Hang Seng Index company to conduct a comprehensive review on the composition of Hang Seng Index constituent stocks. The overall review will cover many aspects, including but not limited to how to combine and select constituent stocks, the number of constituent stocks, weight, industry and geographical distribution. The purpose of this study is to ensure that the Hang Seng index will continue to be a representative and important indicator of the Hong Kong stock market.
According to public information, Hang Seng Index company was established in 1984 as a wholly-owned subsidiary of Hang Seng Bank. The index compiled covers the markets of Hong Kong and Mainland China. It is an important indicator of the scene of Hong Kong stock capital market. Its stock selection scope is also an important circulation direction of Hong Kong stock capital.
In addition, the Hang Seng index is an important indicator of the price of Hong Kong stock market. The index is calculated by the market value of several constituent stocks (i.e. blue chips), representing 63% of the 12-month average market value coverage of all listed companies on the Hong Kong stock exchange. Most of the stocks included in the Hang Seng index are stocks with large market value, active transactions and stable operation. Hong Kong investors will regard the constituent stocks of Hang Seng Index as blue chips. Blue chip stocks are welcomed by most long-term investors and regarded as a stable and reliable investment tool because of their proper operation, profitability, stable dividend and generally high dividend.
Initially, the Hang Seng Index consisted of 33 constituent stocks, reaching 50 by 2012. It is difficult to join the constituent stocks of Hang Seng index mainly because its selection criteria are very strict. In addition to market value, trading volume and listing time, companies with different rights in the same share and second listed companies are not considered. Therefore, Alibaba, Xiaomi, meituan and other secondary listed companies do not meet the requirements.
On May 18, this year, the Hang Seng Index company adjusted this restriction and announced that the Hang Seng Index and the Hang Seng China enterprise index would be included in the new rules. In the future, companies with different rights and secondary listed companies in China (Hong Kong, mainland, Macao, Taiwan) will be included in the stock selection category of Hang Seng Index and Hang Seng China enterprise index. Therefore, Alibaba has become the most popular quarter restructuring. At the end of the day, alibaba-sw shares reached HK $246.8, with a total market value of HK $5.3 trillion, surpassing the HK $4.85 trillion of Tencent holdings, the largest heavyweight stock in the Hang Seng Index.
As for some of the stocks that have been eliminated this time, Su Peifeng, strategist at the international research department of China Merchants Bank, said that the market value of Xinhe real estate was very small in the constituent stocks of the Hang Seng Index, and the number of Hong Kong real estate shares in the Hang Seng index was large. A reduction of one or two would not have a great impact.
In addition to real estate stocks, financial stocks account for nearly 50% of the Hang Seng Index. Therefore, on July 27, 2020, the Hang Seng technology index was launched by Hang Seng Technology Co., Ltd., which selected the top 30 stocks highly related to science and technology theme in market value as index components, including Alibaba, meituan review, Tencent holdings, Xiaomi group, etc. In this quarterly adjustment, the constituent stocks of Hang Seng index did not change, and the number of constituent stocks remained 30. It can be predicted that the proportion of technology equity in Hang Seng index will be further increased in the future.
This time, it is of great significance for the Hang Seng Index to include companies with different rights in the same share into the stock selection scope of the constituent stocks of the Hang Seng Index. It is also a catalyst for the improvement of the valuation of Hong Kong stocks, which can attract more global capital into Hong Kong. At the same time, it is conducive to improve the liquidity of specific companies and attract active and passive capital.